J.C. Penney Co. filed a lawsuit on Monday after debt holders claimed it is in default because it pledged merchandise as collateral on its bank line of credit.

Penney said after the market closed Monday that it has asked a Delaware Chancery Court to stop the debt holders from declaring that it is in default and it asked the court for an order declaring it’s not in default.

The Plano-based department store chain also said it “strongly believes the notice of default is invalid and utterly without merit.”

In a letter that Penney received last week, Brown Rudnick LLP said it represents holders of more than 50 percent of Penney’s notes carrying an interest rate of 7.4 percent and due in 2037. As of Feb. 4, the group held $326 million in principal amount of the debentures and those bondholders could demand immediate payment of that debt.

Brown Rudnick hasn’t yet responded to a request for comment. The firm alleges that Penney violated terms of the debt by entering into an inventory-secured credit agreement in January 2012 for a $1.5 billion line of credit that it hasn’t used. Last month, Penney extended its line of credit to $1.75 billion, utilized an “accordion feature.”

Penney chief financial officer Ken Hannah said, “We believe this notice of default is invalid, completely without merit and is intended to create self-interested trading opportunities in the market, and we will therefore vigorously defend the interests of J.C. Penney and all of our constituencies.”

The retailer claims that it has publicly disclosed for some 10 years that it has had various undrawn credit facilities secured by inventory with no bondholder allegations that terms have been violated.

The default notice comes at a time when Penney is under a huge spotlight as it ended its first year of a difficult transformation. Penney will report fourth-quarter results on Feb. 27. In the first three quarters of 2012, it posted a loss of $433 million and a sales decline of more than 20 percent. As of Oct. 27, Penney had $525 million in cash and said it expected to end the year with $1 billion.